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Pay Attention to Meta’s Quiet Dismantling of Its Biggest Mistake

Meta spent years burning billions on a metaverse nobody wanted, but something quiet is happening inside Reality Labs that could force the market to rethink the entire company's valuation.

By Alex Sirois
Published October 5, 2026, 12:45pm ET · 3 min read

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A hand holds a black smartphone displaying the white 'f' logo of Facebook against a bright blue background. In the blurred background, the blue infinity-loop logo and the black 'Meta' wordmark are visible on a light grey or white surface.
A smartphone displaying the Facebook logo is shown in front of a blurred Meta logo, symbolizing Meta Platforms' strategic evolution beyond traditional social media as it navigates new ventures like AI glasses. © Fritz Jorgensen / iStock Editorial via Getty Images

Meta Platforms (NASDAQ:META | META Price Prediction) trades at $728.08. Reality Labs lost about $19.2 billion in 2025. Meta is quietly rebuilding that unit around AI glasses, and the shift could change how the market values the whole company.

Meta owns Facebook, Instagram, WhatsApp and Messenger, which reach 3.60 billion daily active people. The stock was trading at $597.37 when Meta reported a second-quarter earnings miss. It then gained 22.9% over the past month before falling 3.14% last week on AI spending concerns.

AI Glasses and a Growing Ad Engine Make the Math Work

Ad revenue rose 27% to $59.36 billion. Ad impressions grew 14%, and the average price per ad climbed 12%. Advantage+ hit an annual run rate above $75 billion. Even so, Meta trades at a forward P/E of 22 and a PEG ratio of 0.985.

Reality Labs is changing direction. Its revenue rose 16% to $431 million as AI glasses sales more than made up for lower Quest sales. The unit’s loss narrowed to $4.03 billion in Q1, and Meta cut about 8,000 jobs in May. Excluding legal and severance charges, operating income would have grown 9%.

Capex Could Become Meta’s Next Metaverse

Diluted EPS of $6.18 missed the $7.22 estimate by 14.42%. That ended a six-quarter run of beats. Operating margin fell to 31% from 43%. Free cash flow dropped to $784 million from $8.55 billion as capex rose 82%.

Management raised 2026 expense guidance to $165 billion to $169 billion and expects $130 billion to $145 billion in capex. Legal charges reached $2.40 billion in the quarter. Youth-safety cases and EU ad rules add risk. Debt now stands at $83.7 billion.

Reality Labs Is Shrinking, but the AI Bill Keeps Growing

Management expects 2026 operating income to top 2025’s, which supports the outlook. The bull case requires proof that the AI build-out will lift free cash flow. Q3 revenue guidance of $61 billion to $64 billion is the first test. Over the next two quarters, investors should track Reality Labs losses and whether cash flow rebuilds.

Meta Lags the S&P 500 but Has Room to Rerate

Meta trades at $728.08. The average analyst target is $794.96, which means 9.2% upside. Price targets are estimates and can change. Here is how the 63 covering analysts rate the stock:

  • Strong Buy: 8
  • Buy: 47
  • Hold: 7
  • Sell: 1

The stock trades at 27 times trailing earnings. It is up 10.57% this year, while the S&P 500 is up 12.86%. Over one year, Meta returned 0.47% and the index returned 14.6%.

Meta’s Outlook Brightens as the Metaverse Drag Fades

At $728.08, Meta’s setup rests on a shifting cost base.

Reality Labs was a drag with no clear return. Meta is turning it into an AI glasses business that management calls “one of the fastest growing consumer electronics of all time.” Lower Quest spending could support margins.

The bigger expense, AI infrastructure, already drives revenue. Meta says it is demand constrained and has been offered a significant premium for its compute capacity. WhatsApp-driven other revenue grew 73%.

Watch Q3 margins and the Reality Labs loss figure. Another quarter of shrinking free cash flow without faster growth would break this argument.

Meta is shrinking its largest loss-making unit while the core business grows 28%, and a forward P/E of 22 leaves room for the market to reward the turnaround.

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Alex Sirois

Alex Sirois is a financial writer with experience spanning both retail and institutional investing. He has written for InvestorPlace and held roles at BNY Mellon and Bernstein, giving him a perspective that bridges Main Street portfolios and Wall Street analysis.
Alex holds an MBA from George Washington University and has built his career across multiple industries, including e-commerce, education, and translation — a breadth of experience that informs how he breaks down complex financial topics for everyday investors. His writing is conversational, actionable, and grounded in long-term, buy-and-hold investing principles.
At 247 Wall St., Alex focuses on delivering analysis that is both accessible and useful, with a clear emphasis on helping readers make more informed decisions with their money.

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